UPDATE 2-Fitch warns it may cut BofA, Citi credit ratings

* Fitch may cut credit ratings for BofA, Citi

* May cut support ratings for other U.S. banks

* Warning follows proposed FDIC rules on Dodd-Frank
(Adds banks, Citi individual upgrade, background on Citi and
BofA, analyst, details on Citi call, bylines)

By Maria Aspan and Caryn Trokie

NEW YORK, Oct 22 (BestGrowthStock) – Fitch Ratings warned on Friday
that it may cut the credit ratings or support ratings for
several U.S. banks, including Bank of America Corp (BAC.N: ) and
Citigroup Inc (C.N: ),

The ratings agency’s warning came a few hours after Fitch
said that the ratings of U.S. financial institutions,
especially Bank of America and Citigroup, could be affected by
proposed new banking rules. [ID:nFIT499902]

Last week, the U.S. Federal Deposit Insurance Corporation
issued preliminary rules related to how it will identify
“systemically important” banks and financial companies under
the new Dodd-Frank financial reform law.

Fitch said its warning most affected Bank of America and
Citigroup, because both companies “have benefited from support
provided by the U.S. government.”

Each bank took $45 billion in U.S. taxpayer-funded bailouts
during the financial crisis, and have spent this year clawing
back to sustained profitability. A downgrade from Fitch would
make both banks face a new squeeze on their profits, analysts
said.

“If you get downgraded, it costs you more to borrow money,”
said David Knutson, analyst with Legal & General Investment
Management America.

Fitch could follow through on its warning within three to
six months, but a downgrade would take on far more significance
if the other two rating agencies followed suit, Knutson said.

Fitch also said on Friday it had upgraded Citigroup’s
individual rating to “C” from “C/D,” as a result of the bank’s
“improved financial performance in 2010, including the
emergence of sustainable operating profits and favorable asset
quality trends.”

Citigroup, which is still 12 percent owned by the U.S.
government, reported its third consecutive quarterly profit on
Monday. Its $2.2 billion profit was the latest step in its
recovery from the massive losses that forced it to take three
separate government bailouts during the financial crisis.

Treasurer Eric Aboaf told fixed-income investors during a
conference call on Friday morning that Citigroup expected an
action from Fitch “very shortly.”

He referred to S&P’s decision to upgrade Citigroup’s
stand-alone credit profile in the first quarter of 2010, and
noted, “At the same time they also reviewed the outlook,
revised the outlook on Citi’s supported ratings from stable to
negative, in line with peers. … We believe that Fitch is
currently reviewing this issue, and we anticipate Fitch taking
similar actions very shortly.”

Knutson, who was on the call, said that Aboaf’s comments
led him to believe that Citigroup expected a credit ratings
upgrade.

“I was a bit surprised, because the commentary during the
call led me to believe it was a favorable outcome,” he said.
“Frankly, it sent the wrong message.”

Fitch also said it may cut the support ratings for the
companies or subsidiaries of JPMorgan Chase & Co (JPM.N: ), Wells
Fargo & Co (WFC.N: ), US Bancorp (USB.N: ), Fifth Third Bancorp
(FITB.O: ), Comerica (CMA.N: ), SunTrust (STI.N: ), KeyCorp (KEY.N: ),
Regions Bank [RFGBK.UL], Bank of New York Mellon [BKNYK.UL] and
State Street Bank [STTBT.UL], PNC (PNC.N: ) Bank N.A. and BB&T
(BBT.N: ).
(Reporting by Maria Aspan and Caryn Trokie; Editing by Diane
Craft, Gary Hill)

UPDATE 2-Fitch warns it may cut BofA, Citi credit ratings